A Firm Uses Only Debt and Equity in Its Capital

question 2

Multiple Choice

A firm uses only debt and equity in its capital structure. The firm's weight of equity is 70%. The firm's cost of equity is 13% and it has a tax rate of 30%. If the firm's WACC is 11%, what is the firm's before-tax cost of debt?

• A) 7.17%
• B) 9.05%
• C) 6.38%
• D) 5.36%

---

Definitions:

Photographs

Images captured by a camera that record visual information.

Lens

An optical component made from transparent material that forms an image by focusing or dispersing light rays, commonly found in glasses, cameras, and microscopes.

Rods and Cones

Photoreceptor cells in the retina responsible for vision; rods detect light and dark changes, while cones perceive color.

Bipolar Cells

A type of neuron found in the eye's retina, transferring signals from photoreceptor cells to ganglion cells.